Inflation started to ease right before the holidays, according to new data. Here is a look at what a recent report said about inflation rates.

Inflation Cools Slightly in November

A new report released by the U.S. Labor Department in December indicated that inflation pulled back slightly in November, with prices up 2.7% from a year earlier. This annual inflation rate had soared as high as 3% in September. The most significant price reductions in November came from gasoline and new vehicles.

The core inflation rate excludes volatile food and energy sectors. This is the rate that the Federal Reserve monitors when making its decisions. The 2.6% core inflation rate notched in November was the lowest it has been since 2021.

The lower rate was a surprise to many financial experts who had predicted that inflation would continue to creep up. For example, one consensus prediction estimated that the overall inflation rate for November would hit 3.1%, almost a half point higher than the reality.

President Donald Trump's aggressive tariff strategy was expected to send inflation even higher; however, that did not materialize in November. The better-than-expected inflation report was credited with the jump in stocks at the opening bell on December 18.

It has been difficult to get a good read on the state of the economy in recent months. The country's record-long federal government shutdown meant that there was no official inflation report for the month of October. The historic shutdown started on October 1, lasting until November 12. The nearly six-week shutdown paired with the Thanksgiving holiday to create a large gap in economic reporting.

The lapse in reporting also means that the Labor Department was not able to release the month-to-month changes in consumer prices for the month of November. Economists typically look at these monthly changes to get a better understanding of the overall health of the economy.

What the Data Tells Us

Despite the uncertainty surrounding some of this data, there is a good deal of definitive information coming out of the recent reports. What is certain is that inflation rates have continued to inch up at a steady pace since President Trump launched his tariff strategy. Most economists blame the tariffs for the stark increase in consumer prices over the summer and fall.

For example, the annual inflation rate hovered at 2.3% in April. This was the lowest ebb since the early months of 2021. This index increased to 3% in September, marking the highest mark since January.

Economists believe that it is not a coincidence that inflation began to creep up again when the Trump administration rolled out its tariff plan. According to a November paper from the National Bureau of Economic Research, the slew of import taxes has added approximately 0.7 percentage points to the overall inflation in 2025 through September.

It is hard to blame retailers for passing along their tariff costs to customers. This has naturally translated to higher prices in several categories despite decreases in prices in areas such as gas and rent.

Relationship Between Inflation and Interest Rates

The drop in inflation rates observed in November could impact the decisions made by the Federal Reserve in connection with interest rates. The Fed is scheduled to meet next in January of 2026.

The Fed generally raises interest rates in an effort to put a lid on inflation. Conversely, the Fed typically lowers interest rates if the goal is to boost the job market.

The data reported in the November inflation report takes some of the pressure off the Fed to make major decisions about interest rates. The agency's inflation target is an annual rate that hovers at 2%. Consumers do not usually even notice inflation happening at this level. This index was close to this goal when the president released his tariff plan last spring, sending the rate higher and above what the Fed likes to see.

The Fed is also grappling with how to respond to rising unemployment rates. This metric came in at 4.6% in November, the highest it has been in over four years.

Economists are warning that inflation rates of 3% would present challenges to many consumers; however, it is far from a major economic crisis. Several predictions signal that the inflation rate will bounce around in the 3% range through the first few months of the new year.

On the other side of the aisle, those in the GOP are hopeful that the rise in inflation attributed to tariffs is already baked into the next round of data. This would mean that prices should continue to trend lower in the months to come. Only time will tell how the economy responds to the latest round of tariffs.

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